The Opportunities and Challenges for Novartis' New CEO

By Patricia Van Arnum - DCAT Editorial Director

February 21, 2018

Vasant Narasimhan, MD, took the helm of Novartis on February 1, 2018, assuming the role of CEO following the retirement of former CEO Joseph Jimenez. So what does the new CEO face?

Key for Narasimhan will be to drive growth in the company's mainstay pharmaceutical business, which has had relatively flat sales in 2017 and 2016. He also faces decisions on Alcon, the company’s eye-care business, and the US business of Sandoz, the company’s generics arm. DCAT Value Chain Insights takes an inside look.

Novartis' New CEO

Narasimhan takes the reins at Novartis following his role as global head of drug development and chief medical officer at Novartis. He became global head of drug development and chief medical officer at Novartis in February 2016 and took the lead role in the newly formed Global Drug Development organization, where he was responsible for overseeing drug development across the company’s innovative medicines and biosimilars portfolio. Jimenez, who had been CEO of Novartis since 2010, stepped down as CEO, effective January 31, 2018 and will support the transition until he officially retires on August 31, 2018.

Vasant Narasimhan, MD, CEO, Novartis. He took the helm on February 1, 2018.Source: Novartis

Narasimhan takes over at a significant juncture for Novartis as the company faces relatively flat sales, in part due to generic-drug competition for one of its top-selling products, the anti-cancer therapy, Gleevec/Glivec (imatinib), and other products and as it faces forthcoming decisions on the future of Alcon, its eye-care division. The company announced a strategic review of Alcon in 2017 due to underperformance, but the business showed improved results in 2017. Alcon net sales in 2017 were $6.0 billion (+4%, +4% constant currency [cc]). Alcon’s operating loss was $190 million for the full year 2017, compared to a loss of $132 million in the prior year, mainly due to growth-plan investments and higher impairment charges related to business-development activities, partly offset by higher sales. Novartis paid $51.6 billion to acquire Alcon from Nestlé as part of a multi-year process that was finalized in 2011. Due to underperformance, Novartis announced in January 2017 that it was considering strategic options for the business. Novartis says it will continue to evaluate the business to see if favorable results will continue in 2018, with a decision expected in the first half of 2019.

The company will also evaluate the US business of Sandoz, the company’s generics arm. In the company’s full-year 2017 results announced in January 2018, the company reported that the US oral solids business of Sandoz was “challenged due to industry-wide pricing pressures” and that it is “continuing to reshape our US business with a focus on more complex products while preparing for upcoming biosimilar launches,” according to a financial presentation highlighting the company’s results. For 2017, Sandoz reported net sales of $10.1 billion (-1%, -2% cc) in the full year as volume growth of 6 percentage points was more than offset by 8 percentage points of price erosion. Sales in the US declined 12% mainly due to increased industry-wide pricing pressure and continued customer consolidation, according to the company.

Growth in prescription pharmaceutical business

Key for Narasimhan is bolstering the company’s pharmaceutical business. Novartis consists of three divisions: Innovative Medicines (its prescription-drug business), Sandoz (its generics and biosimilars business), and Alcon (its eye-care division). In moving to the CEO position, Narasimhan is inheriting a company that had relatively flat sales in its mainstay pharmaceutical business in 2017.

In 2017, Novartis reported overall net sales of $49.1 billion, up only 1% (+2% cc), and Innovative Medicines, which accounted for 67% of the company’s 2017 revenues, delivered net sales of $33.0 billion (+1%, +2% cc) in the full year 2017, which included $2.1 billion from Cosentyx (secukinumab), a drug to treat psoriasis, ankylosing spondylitis, and psoriatic arthritis, and $507 million from Entresto (sacubitril/valsartan), a drug to treat heart failure. Both drugs, approved by the US Food and Drug Administration in 2015, are key current and future performers for the company as it faces generic-drug competition for key products. Chief among them is Gleevec/Glivec (imatinib), a drug to treat a certain form of leukemia and certain types of gastrointestinal stromal tumors. Gleevec/Gilvec was the company’s top-selling drug in 2016 with sales of $3.3 billion, but sales declined 42% in 2017 to $1.9 billion due to generic-drug competition. In 2017, Gilenya (fingolimod), a drug for treating relapsing forms of multiple sclerosis, was the company’s top-selling drug with 2017 sales of nearly $3.2 billon followed by Cosentyx (secukinumab), which reached blockbuster status in 2016 with sales of $1.1 billion and which had sales of nearly $2.1 billion in 2017.Table I highlights the company’s top five-selling innovative medicines.

Table I. Novartis' Top-Five Selling Innovative Medicines

Product

Indication

2017 Sales

Gilenya (fingolimod)

Relapsing forms of multiple sclerosis

$3.185 billion

Cosentyx (secukinumab)

Psoriasis, ankylosing spondylitis, and psoriatic arthritis

$2.071 billion

Gleevec/Glivec (imatinib)

Chronic myeloid leukemia and gastrointestinal stromal tumors

$1.943 billion

Lucentis (ranibizumab)

Age-related macular degeneration

$1.888 billion

Tasigna (nilotinib)

Chronic myeloid leukemia

$1.841 billion

Source: Novartis

Oncology is Novartis’ largest product franchise, accounting for $12.3 billion in revenues in 2017 or 37% of its Innovative Medicines business. The key issue for Novartis going forward is addressing increased generic-drug competition for its top-selling oncology drug Gleevec/Glivec (imatinib), a drug to treat a certain form of leukemia and certain types of gastrointestinal stromal tumors. Gleevec/Gilvec had 2017 sales of $1.9 billion, down from $3.3 billion in 2016 due to increase generic-drug competition. Under Jimenez’s tenure, the company’s oncology franchise was increased with the addition of oncology assets acquired from GlaxoSmithKline (GSK) in 2015 as part of a three-part transaction between Novartis and GSK.

Under that deal, Novartis acquired certain oncology products and pipeline compounds from GSK. GSK and Novartis created a consumer healthcare joint venture that combined the two companies' consumer healthcare divisions, and GSK acquired Novartis' non-influenza vaccines business. Oncology was the largest piece of that deal for an aggregate cash consideration of $16 billion (with up to $1.5 billion of this amount contingent on certain development milestones). With the closing of the deal, some key products that Novartis gained included: Tafinlar (dabrafenib), a BRAF inhibitor, and Mekinist (trametinib), a MEK inhibitor, both indicated for treating metastatic melanoma and non-small-cell lung cancer; Votrient (pazopanib), a kinase inhibitor for treating advanced renal cell carcinoma and advanced soft tissue sarcoma; Promacta (eltrombopag) for treating thrombocytopenia; Tykerb (lapatinib) for treating HER2+ metastatic breast cancer; and Arzerra (ofatumumab) for treating chronic lymphocytic leukemia. Novartis also gained opt-in rights for GSK's current and future oncology R&D pipeline (excluding oncology vaccines), which could be a source of new compounds and new targets. Sales of the acquired GSK oncology products in 2014 were approximately $2.0 billion.

Key pipeline assets and recent approvals

Advancing the company’s pipeline will be key for the new Novartis CEO. The company had more than 200 projects in clinical development, as of December 31, 2017. Some key assets in its late-stage pipeline, under regulatory review, or recently approved in oncology include: Kisqali (ribociclib), a drug for treating breast cancer, which was approved in the US in March 2017 and in the European Union in August 2017; isagenlecleucel, a chimeric antigen receptor T-cell therapy, for treating acute lymphoblastic leukemia, which was approved in 2017; and crizanlizumab, a drug for treating sickle-cell pain, which is on track for regulatory submission in 2018. In its cardiovascular franchise, the company continues to bank on Entresto, which is approved for treating heart failure, and for canakinumab, a drug to reduce cardiovascular risk. Other key late-stage pipeline candidates are in its neuroscience, immunology and dermatology, respiratory, and ophthalmology franchises. In neuroscience, key products are ofatumumab and siponimod, both for treating relapsing multiple sclerosis, and erenumab for migraines. In immunology, the company is looking to advance another indication for its already blockbuster drug, Cosentyx, to include treatment of non-radiographic axial spondyloarthritis. It is also advancing two asthma drugs, a combination therapy of indacaterol, glycopyrronium, mometasone, and a single therapy of fevipiprant. In ophthalmology, the company is advancing brolucizumab, a drug to treat neovascular age-related macular degeneration.